The Brazilian economy has technically fallen into recession alter two consecutive quarters of negative growth according to the latest release from the Brazilian Geography and Statistics Institute, IBGE.
IBGE announced this Thursday that Brazil's GDP contracted 1,6% in the second quarter of 2003 compared to the first quarter and 1,4% to the same period a year ago. Brazil's GDP had dropped 0,6% in the first quarter of 2003.
The contraction is far greater than expected by local analysts who estimated a 0,4 to 0,5% drop in the second Q 2003 and a slight recovery compared to the same period a year ago, instead of a 1,4% retraction.
Industrial output shrank 3,7% over the period as companies and consumers suffered from the high interest rates.
However the situation is far more serious politically for president Luiz Inacio Lula da Silva who on taking office last January announced a strong austerity in the first half of 2003 to combat inflation, and promised "a growth festival" for the second half.
Earlier this week the Brazilian press leaked an IMF report drastically reducing the country's growth estimate for 2003 from 2,8 to 2,2%.
Nevertheless the Brazilian Central Bank that has been behind the strong decisions to curtail inflation, particularly high interest rates, argued that the current Brazilian situation "is not exactly a recessive scenario regarding economic activity".
"Some important activities such as agriculture and those linked to export industries are showing strong growth rates", said a Central Bank source.
Development and Foreign Trade Minister, Luiz Furlan who has strong links with the business community underlined that in the last quarter of the current year "we'll be seeing a reversion of the current economic outlook. Many businessmen are preparing investment projects".
Mr. Furlán added that Brazilian exports this year will increase 8 billion US dollars over 2002, "which means between 600,000 and a million new jobs".
Last week Brazil's Central Bank trimmed rates by 2,5 point to 22% the third reduction in three months. Another positive sign is the latest unemployment figures indicating that the rate fell to 12,8% in July from 13% the previous month.